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Mainland Rental Housing Operator Lejia Defaults on Debts, Shuts Down

2019/08/10 by Jan Kot Leave a Comment

Lejia team

Lejia says it has let go most of its team

Mainland rental housing operator Lejia ended weeks of speculation by announcing through the company’s official WeChat account this past week that it has “ceased operation, closed down all business, and let go of most of its staff.”

Three-year-old Lejia, which at its peak covered eight Chinese cities with 100,000 listings and over one thousand employees, admitted in its statement that the company has no operating income and is unable to repay its debts.

The Nanjing-based company becomes the latest in a string of at least 20 rental housing startups to default or shut down in China’s once booming rental housing sector since the beginning of 2018.

Pivoting From Boom to Bust

Lejia’s announcement came less than a month after the company declared publicly on 21 July that its business remained normal and that its management team remained in place. The rental housing operator, which operated by securing apartments from landlords via long-term leases and then subletting the properties to individual tenants, also said at the time that it was actively in talk with investors and working to resolve its financial difficulties.

Lejia apartment

An apartment in Hangzhou can still be found on Lejia’s website

In its latest statement Lejia’s management said that, “after some serious reflection” it has realized that its business model of paying high prices to secure properties for lease, and then subletting them at lower prices involved major flaws and had brought risks to the rental housing market.

The company, which has also raised allegations of embezzlement against staff in its Hefei office also pointed to operational challenges as a reason for the abrupt shutdown. “In addition, the lack of a proper management system within the company has caused the current situation of us closing down all businesses,” the statement said.

Founded in May 2016, Lejia quickly expanded to eight cities, moving beyond its hometown in the capital of Jiangsu province down the Yangtze River into Suzhou, Kunshan and Hangzhou. Further west, the company also set up business in Hefei, Chengdu, Chongqing, and Xi’an.

According to a company profile on a recruitment website, Lejia had planned to set up additional branches this year in cities including Shenyang, Xuzhou, Xiamen, Foshan, Guangzhou, Shenzhen, Beijing and Shanghai.

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At its peak the company had established more than 300 rental facilities in China, listed more than 100,000 properties and employed more than 1,000 staff. In total the company says that its property assets under management had reached up to RMB 100 billion.

Currently, Lejia’s website showcases listing from the just three cities  — Nanjing, Hangzhou and Suzhou.

China’s Rental Housing Demolition Derby

The growth prospects of China’s rental housing market, with the sector having been appointed as a top policy object by the central government has lured numerous startups into the market and created fierce competitions.

There are already some 1,000 dedicated operators competing for a slice of the rental market, plus 30 property developers and 10 real estate agencies, according to Chinese tech media 36kr, as well as some 20 hotel brands that are diversifying into rental apartment buildings.

The sector’s rapid growth has brought rental housing players into the headlines as much for their failures recently as it has for their fund raising.

In June news reports indicated that a long-term rental housing business operated by Guoan Family, a real estate affiliate of state-linked CITIC Guoan Group, had been accused by landlords of not paying rent on the apartment that it leases to tenants.

In a separate incident last November, angry tenants and landlords occupied the Beijing office of Haoyuan Hengye Long Term Rental Apartment to launch their own extra-legal detention of the housing company’s management in an attempt to force it to follow through on unfulfilled commitments.

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On 29 July China’s National Academy of Economic Strategy released an analysis of China’s housing market which predicted that, due to economic constraints, rental growth in the market sector would slow down significantly compared to the same period last year.

Based on that prospective decline in revenue growth, the government think tank predicted that many rental housing operators would struggle to meet their targets, and foresees that market’s more aggressive players may be facing greater financial pressures and increasing possibility of bankruptcy.

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Filed Under: Finance Tagged With: daily-sp, rental housing

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